How to Win Multi-Offer Situations: The Escalation Clause

What is an Escalation Clause?

With many sellers choosing to delay showings until the first Open House to receive multiple offers that day, buyers’ agents are suggesting buyers include an Escalation Clause with their offers to outbid competing buyers. So, what is an Escalation Clause and how does it work?

While an Offer includes a fixed price that a buyer is willing to pay for a property, an Escalation Clause is an addendum that allows a buyer to outbid any higher competing offers by increasing the offer price up to a pre-determined limit based on the amount of the competing offers.

Example: You submit an offer to purchase a home for $250,000, but you are one of 8 competing offers submitted. You include an Escalation Clause stating that you will beat any higher offer by $1000 up to $275,000. If no other offer exceeds your parameters, your offer becomes the highest offer by $1000.

However, which offer is selected always remains at the sellers’ discretion and having the highest bid may not always be the deciding factor. Cash buyers, personal letters to sellers, and short closing timelines may also factor in to a sellers’ decision. It is also important to note that the total price of how high you are willing to go is disclosed to the seller in the Escalation Clause, and they may choose to counter your offer at the maximum price you stated you were willing to pay.